Detroit's Hybrid Conundrum

March 17, 2009

This was predictable: Now that gas is back down below $2 per gallon, people aren't quite as keen on paying a bit extra for hybrids or other fuel-efficient cars as they were last summer. Also, there's a recession going on, so many people aren't buying cars, period—when money's tight, delaying a car purchase is often one of the easier cutbacks to make. Trouble is, the major U.S. automakers still feel the need to keep developing and churning out pricier green vehicles at a frantic pace, in part because they promised Congress they'd do so when they came begging for bailout money.

It's a real conundrum—most carmakers still make money off their gas-guzzlers, whereas the new hybrid models are pricey and won't be profitable for years. Toyota's Prius was a money-loser for a whole decade before finally going in the black last year—and, of course, Toyota wasn't on the verge of bankruptcy that whole time in the way, say, GM is right now. So that puts the automakers in a cramped spot. Granted, the Obama administration could just relax fuel-economy standards or tell automakers not to bother with the whole green car thing, but that would be short-sighted—oil prices are likely to rise eventually, and someone needs to develop affordable plug-in hybrids fairly soon if we want to get our carbon emissions under control.

So what's to be done? I'm really not sure. One possibility: Congress could step in and offer expanded tax credits targeted toward fuel-efficient cars, although there are already plenty of incentives like that in place (even the $3,400 tax credit for, say, a Ford hybrid—plus the deduction for new car purchases—isn't luring in many buyers). Another option is to goose up the gas tax, which would get consumers flocking toward cars that get better mileage—but hardly anyone in Washington wants to talk about that right now. Or we can just cross our fingers and hope the automakers scrape by, which seems to be the current strategy.